Investments in real estate are often for life. You make a lot of efforts to select the right property, taking into considerations several factors. Be the connectivity, amenities, or the budget; there are many more before you finally decide to take the plunge. This is also because the cost involved in real estate investment is quite high, with loans going for 20-30 years.
Moreover, there are a lot of emotions and sentiments attached with immovable property. With all these comes a legal angle too. When you spend so much in terms of money and time towards investing, you surely do not want to err on the wrong side of the law.
Legal terms come across as slightly confusing and difficult to comprehend for most of us. But don’t worry. We at RoofandFloor are always there to assist you through the process of real estate investment. In this post, we bring to you the top seven real estate legal terms that you should be aware of.
While you are doing your due diligence before selecting the property, you must have come across this the term Encumbrance Certificate (EC).
An encumbrance can be referred to as a charge created on any asset, but most commonly used in real estate parlance. This certificate can be obtained from the registrar of properties. It assures that the particular property is free from any liability such as an earlier uncleared loan or a mortgage.
This certificate is not only required to provide a clear title to the buyer but is a mandatory requirement for obtaining a loan for the property from banks/financial institutions. Encumbrance certificate may not carry value when you are buying a new property in an apartment complex but matters a lot when the property in question is a standalone structure or an inherited property.
Agreement to sale
Once you have done your scrutiny and decided to go ahead with the property, you enter into an agreement with the developer/owner of the property. This agreement lays out the advance payment made by you to book the property, the delivery, and future payment schedule if any (for an under-construction property), and other terms and conditions. This document is the one that binds the seller to sell and the buyer to buy the property, and the document is called the agreement to sale. This is also a legally binding document.
Sale agreement/ Sale deed
We have just mentioned a similar sounding agreement above, you may be wondering what the difference between the two is. The agreement to sell is just an agreement that the actual sale will take place on a future day, while the Sale Deed or the Sale agreement is the document that transfers the title of the property from one party to another. Sale Deed needs to be registered and stamp duty paid to ensure the transfer of title.
Power of attorney
Power of Attorney (PoA) grants someone the power to act on your behalf. This is a standard procedure used by NRIs and others who are physically unable to discharge their obligations due to old age, disability, etc. In real estate transactions, the transactions were conducted under the PoA till a few years ago as this allowed circumvention of rules.
As stamp duty is payable on all property transactions, sale under power of attorney helped evasion of duty. This also meant a lot of gullible buyers got duped. Hence the Supreme Court passed an order in the year 2011 banning real estate transactions under PoA and directed municipal/registering bodies not to register properties bought/sold under GPA.
Title Deed is a legal document that proves that you hold the right to ownership over a particular property. The title deed is an absolute requirement to prove your ownership. The title deed includes the description of the property and the name/s of the owners. When you enter into sale real estate transaction, make sure that the individual from who you are buying has his/her name on the title deed.
A title deed for a property over which you have ownership can be obtained from the urban/municipal authorities in whose jurisdiction your property is located. To apply for the title deed, you would need to submit other documents like the sale deed, registration certificate, tax paid receipts, etc.
Commencement Certificate (CC) is a document that allows a real estate developer to begin construction of the project. The town/city planning authorities issue this certificate. The developer will need to submit his plans and other relevant approvals obtained by him to get the commencement certificate. The authorities verify the papers submitted and issue the CC. As a buyer, one should make sure that the developer has required certificates for starting construction.
Under RERA, a CC is mandatory for the project to get RERA approval.
This is again an important certificate that is required by residents to start residing in the property bought by them. Once the builder finishes construction of the project, he needs to get the Occupancy Certificate (OC) from the concerned authorities. This certificate is issued to convey that the project has been constructed following all guidelines and approvals issued and that the project is suitable for occupying by the general public. The OC has to be applied within 30 days from project completion.
As a buyer of a property, you can proceed legally against a developer for not providing you with the OC. In the absence of an OC, the project/building will be deemed illegal and the authorities can at any time initiate action against you.
It is imperative to possess a good knowledge of real estate legal terms so that you can always make an informed decision while buying a home. If you need any legal assistance, our Home Buying Advisors can always give you a hand.